Best Case: Corn Ethanol Demand Tops 5 Billion Bushels

The following information is a Web Extra from the pages of Top Producer. It corresponds with the article "Biofuels Outlook Centers on Politics." You can find the article in Top Producer’s Summer 2013 issue.

It will take higher blends, however.

Corn use for ethanol might again reach 5 billion bushels like it did in the record year 2011, possibly even top it, during the next two years. It will take higher blends to do it, though.

"In the event of a scenario where E15 and E85 gain unrestrained market penetration, corn ethanol demand will still likely slow and will peak near 5.4 billion bushels by 2015," says Sterling Liddell, senior vice president, Rabo AgriFinance. That’s a best-case scenario and probably a long shot for corn producers, he acknowledges, and would require government and market action.

Such an increase would represent a significant uptick from this year. EPA projects ethanol use for 2013 at 12.85 billion gallons, requiring 4.64 billion bushels of corn. That’s far short of the 13.8 billion gallon mandate, which will be met by blenders through the use of previously blended ethanol credits, called RINs, which have become a market on their own.

Much more dire challenges to the ethanol mandate will be encountered in 2014 when the deficit between the blend wall and the mandate widens to almost 2 billion gallons, Liddell says. In 2013, he estimates that 2 billion to 2.2 billion gallons of RINs are available for filling the deficit. The balance of approximately 1 billion gallons is expected to be available for 2014.

"It appears unlikely that there will be any available RINs to help meet the more than 2 billion gallon deficit by 2015," he says. "Obligated blenders will require a feasible pathway through the blend wall (such as E15 or E85) or they face the unappealing decision to meet the ethanol mandate by selling less fuel in the U.S. market."

The latter would further reduce ethanol demand.

Reason for the mandate conundrum: In 2007, when Congress passed the mandate, U.S. gasoline use was expected to grow to well over 150 billion gallons by 2015. That would have allowed 15 billion gallons of ethanol to be used without exceeding a 10% blend. However, since 2007, U.S. gasoline use has actually decreased to 133 billion gallons.

Liddell says that either the mandate is reduced, most likely by EPA, or higher ethanol blends gain traction. If the latter, corn demand gets a healthy push.—Ed Clark